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Cmd091020 Audit ExitEDMONDS CITY COUNCIL VIRTUAL ONLINE SPECIAL MEETING AUDIT EXIT CONFERENCE APPROVED MINUTES September 10, 2020 ELECTED OFFICIALS PRESENT Mike Nelson, Mayor Adrienne Fraley-Monillas, Council President Luke Distelhorst, Councilmember Diane Buckshnis, Councilmember Vivian Olson, Councilmember CALL TO ORDER ELECTED OFFICIALS ABSENT Kristiana Johnson, Councilmember Susan Paine, Councilmember Laura Johnson, Councilmember STAFF PRESENT Dave Turley, Acting Finance Director Scott Passey, City Clerk The Edmonds City Council virtual online special meeting was called to order at 2:00 p.m. by Mayor Nelson. Elected officials, City staff and members of the audit team, Kristina Baylor, program manager; Kirk Gadbois, assistant audit manager; and Maggie Wallis, audit lead; introduced themselves. 2. AUDIT EXIT REPORT 1. 2019 CITY OF EDMONDS AUDIT EXIT REPORT — STATE AUDITOR'S OFFICE Ms. Baylor presented the draft fiscal year 2019 audit of the City of Edmonds. She reviewed: • Three audits were conducted for 2019 audit period: o Accountability audit x Covers compliance with state laws, regulations, contracts, grant agreements, and policies and procedures Analyzes city's internal controls to ensure they are adequate to safeguard public funds and prevent misappropriation o Financial statement audit * Looks at annual financial statements prepared by the city to determine if they are fairly stated and internally correct +� Upon completion of audit, an opinion is issued on the financial statements as to whether or not they are fairly stated and the public can rely on the information that is included o Federal grant compliance audit * Determines if the city complied with all the associated requirements of receiving federal grant funding • This audit is only required when the city expends more than $750,000 in federal funds in a given fiscal year which the city did surpass in 2019 o Comprehensive Annual Financial Report opinion letter Edmonds City Council Approved Minutes September 10, 2020 Page 1 City participates in Government Financial Officers Association CAFR award program which requires the city prepare additional information beyond the required statements and schedules and be eligible to apply for award Audit team reviewed that additional information and provided a condensed version of the financial statement results for inclusion in the city's award application packet (award application has been submitted and is pending review) Ms. Wallis explained as part of the financial audit last year, a finding was issued which included recommendations over capital assets. During this year's financial audit, follow-up on that finding was required. As part of their review, they noted the City dedicated a lot of time and effort in working with other departments to obtain supporting documentation that would substantiate or provide better details regarding individual assets recorded on the capital asset list. She appreciated the City taking the time to resolve the prior year's finding. In addition, due to COVID, they were unable to perform the audit on site and she expressed appreciation to City staff for the exceptionally well organized and clearly labeled records they picked up from the City which required very little back and forth with staff. Ms. Baylor referred to the section in the audit packet entitled, Recommendations Not Included in the Audit Reports. She explained their office has three levels of reporting from an audit; first, an audit finding which, if found, is included in its entirety in the published audit report. She was pleased to report the 2019 audit report identified no items that rose to the level of an audit finding. In following up on last year's finding, they found that issue was substantially resolved. The next level is a management letter which is not as significant as an audit finding, but is still a formal letter to the Council and the Mayor. Management letters communicate items that they believe the governing body should be aware of and, if not addressed, could rise to the level of an audit finding in future years. She was pleased to report there were no management letter items in the 2019 audit. The lowest level of renortine is exit items which are very miner items cnmmnnly e.nnnnntP.rP.d rinrino nn �. -I --------------- -----------v-------------------a --- audit; she likened them to housekeeping items. During the course of their review, they will occasionally identify small policy items or small control items that are not deemed significant or at great risk of misappropriation or non-compliance. There were a few of these items which have been shared with management. They are small in nature and are not included in the audit report as they believe management is the appropriate level to address them. She offered to share them after the exit conference if the Council was interested. Ms. Wallis reviewed the Results in Brief, highlighting: • In those selected areas, City operations complied, in all material respects, with applicable state laws, regulations, and its own policies, and provided adequate controls over the safeguarding of public resources. • Report contains the results of our independent accountability audit of the City of Edmonds from January 1, 2019 through December 31, 2019 • Based on our risk assessment for the year ended December 31, 2019, the areas examined were those representing the highest risk of fraud, loss, abuse, or noncompliance. We examined the following areas during this audit period: o Accounts payable — general disbursements, credit cards, electronic funds transfers and employee reimbursements • As it is considered a significant system, it is reviewed every few years for any glaring internal control issues and bringing them to management attention • Based on review, did not identify any significant issues o Financial condition o Licenses and permit software conversion Edmonds City Council Approved Minutes September 10, 2020 Page 2 ■ In December 2019 City converted to new permitting software. Any time cities convert to new software, the Auditor's Office likes to review after conversion to ensure all data was accurately and completely transferred, that user permissions and security settings are appropriate and to ensure the system is working as it should * Based on review, confirmed conversion met all those attributes and no areas of concern were identified o Payroll - leave cash outs and separation agreements o Budget compliance it During audit received citizen inquiry regarding the City's operations, specifically accounting for COVID-19 expenditures and the City's procurement of contract for legal services - Followed up on questions and did not identify any significant issues that needed to be brought to the City's or citizens' attention. ■ Audit did not review the allowability of COVID expenditures, that will occur in future years Ms. Wallis referenced the following sections in the audit report which concluded the accountability audit report: • Related Reports - references the financial and federal grant programs audit • Information About the City • About the State Auditor's Office Mr. Gadbois reviewed: • Section I - Summary of Auditor's Results o Financial statements ■ No significant deficiencies • No material weaknesses ■ No instances of noncompliance that were material to the financial statements of the City o Federal Awards IN Highway Planning and Construction Cluster - Highway Planning and Construction Section II - Financial Statement Findings Summary Schedule of Prior Audit Findings o City -prepared summary schedule of prior audit findings ■ Status of corrective action - fully resolved Internal Control Report o In addition to financial audit, auditor looks at internal control over financial reporting o Do not give any opinions, but if identify any significant deficiencies or material weaknesses, auditor would be required to report them in audit report o Review did not identify any deficiencies in internal controls that they consider to be material weaknesses. o Review did not identify an instances of noncompliance or other matters that are required to be reported Report on Compliance for each Major Federal Program o Review did not identify anything that would change opinion to a modified opinion; City received clean unmodified opinion over its federal programs for the year ended December 31, 2019 o Review did not identify any deficiencies in internal controls that they consider to be material weaknesses. • Independent Auditor's Report on Financial Statements o Opinions Edmonds City Council Approved Minutes September 10, 2020 Page 3 ■ In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business - type activities, the aggregate discretely presented component unit, each major fund and the aggregate remaining fund information of the City of Edmonds, as of December 31, 2019, and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the General fund, for the year then ended in accordance with accounting principles generally accepted in the United States of America. o Matters of Emphasis: + As discussed in Note 19 to the financial statements, in February 2020, a state of emergency was declared that could have a negative financial effect on the City. Management's plans in response to this matter are also described in Note 19. Our opinion is not modified with respect to this matter. Ms. Baylor added the note under Matters of Emphasis is seen in almost all financial reports and is not unique to the City of Edmonds as the financial impacts of the pandemic are not fully known. Mr. Gadbois continued his review: • Required Supplementary Information o We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. • Supplementary and Other Information o In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. • Financial Section n Rarniirarl CIInnfomPninI Tn4' r af;n o Basic Financial Statements o Many governments in Washington prepare a maximum of four statements ■ It requires extra steps to prepare the numerous schedules and statements that Edmonds prepared this year to apply for the CAFR award to provide that additional transparency to citizens Mr. Gadbois explained the Financial Audit Report and the Accountability Audit Report will be published on the Auditor's website in the next 1-2 weeks. He referenced the CAFR letter provided by the Auditor's Office to the City that is posted on the auditor's website. The CAFR letter is a condensed version of the Financial Audit Report expressing the auditor's opinion and states the auditor did not identify any significant. He referenced the Management Representation Letter that contains general representations and acknowledges the City provided all the information requested. Councilmember Buckshnis asked whether the Mayor who is the head administrator, should have signed the letter dated 8/31/20 since he is responsible for it and the City Council only provides oversight. She questioned whether the letter should have gone through Council for the -Council President to have signed it. Mr. Gadbois answered not necessarily, it is required to be signed by someone who has oversight of the financial aspects of the City and also it is vague on the administrative aspect of the signature. Councilmember Buckshnis observed Mr. Turley was signing for the administration. Mr. Gadbois said Mr. Turley was signing on the finance side and someone in the oversight capacity signs and that could be the Mayor or Council. There are no requirements either way. Councilmember Buckshnis acknowledged that the Mayor may have been out of town. Ms. Baylor reviewed closing remarks Edmonds City Council Approved Minutes September 10, 2020 Page 4 Communications required by audit standards o In relation to our financial statement audit report, we would like to bring to your attention: ■ Uncorrected misstatements in the audited financial statements are summarized on the attached schedule. We agree with management's representation that these misstatements are immaterial to the fair presentation of the financial statements. - A table of these items is on the last page of the packet. ■ There were no material misstatements in the financial statements corrected by management during the audit. Finalizing Your Audit o Report Publication ■ Audit reports are published on our website and distributed via e-mail in an electronic .pdf file. We also offer a subscription service that allows you to be notified by email when audit reports are released or posted to our website. You can sign up for this convenient service at: https://portal.sao.wa.gov/SAOPortal/ o Management Representation Letter ■ A copy of representations received from management is included in the packet. o Audit Cost ■ At the entrance conference, we estimated the cost of the audit to be $86,000 plus travel and other expenses of $10,000. ■ Actual audit costs will approximate $91,500 as working remotely, due to the ongoing COVID-19 pandemic, resulted in some related delays. However, with the assistance of City staff, we were able to keep total audit costs with the original estimate of $96,000 by utilizing unused travel costs and will remain under the original estimated budget. o Next Scheduled Audit ■ Next audit for the 2020 fiscal year is scheduled to be conducted in spring 2021 and will cover the following general areas: - Accountability for Public Resources - Financial Statement including Comprehensive Annual Financial Report Opinion Letter - Federal Programs ■ Estimated cost for next audit based on current rates is $86,000 plus travel expenses of $10,000. This preliminary estimate is provided as a budgeting tool and not a guarantee of final cost. o Audit Survey ■ When your report is released you will receive an audit survey from us. We value your opinions on our audit services and hope you provide feedback. - Link can be forwarded to any staff that participated in survey; the more feedback, the better. o Local Government Support Team ■ This team provides support services to local governments through technical assistance, comparative statistics, training, and tools to help prevent and detect a loss of public funds. Our website and client portal offers many resources, including a client Help Desk that answers auditing and accounting questions. Additionally this team assists with the online filing of your financial statements. o The Center for Government Innovation ■ The Center for Government Innovation of the Office of the Washington State Auditor is designed to offer services specifically to help you help the residents you serve at no additional cost to your government. What does this mean? We provide expert advice in areas like Lean, peer -to -peer networking and culture -building to help local governments find ways to be more efficient, effective and transparent. The Center can help you by Edmonds City Council Approved Minutes September 10, 2020 Page 5 providing assistance in financial management, cybersecurity and more. Check out our best practices and other resources that help local governments act on accounting standard changes, comply with regulations, and respond to recommendations in your audit. The Center understands that time is your most precious commodity as a public servant, and we are here to help you do more with the limited hours you have. If you are interested in learning how we can help you maximize your effect in government, call us at (564) 999- 0818 or email us at Center@sao.wa.gov. o Questions? ■ Please contact us with any questions about information in this document or related audit reports. — Kelly Collins, CPA, Director of Local Audit, (564) 999-0807, Kelly.Coll ins@sao.wa.gov — Tina Watkins, CPA, Assistant Director of Local Audit, (360) 260-6408, Tina.Watkins@sao.wa.gov — Kristina Baylor, Program Manager, (425) 951-0290, Kristina.Baylor@sao.wa.gov — Kirk Gadbois, Assistant Audit Manager, (425) 951-0912, Kirk.Gadbois@sao.wa.gov — Magdalene 66Maggie" Wallis, CPA, Audit Lead, (425) 948-7401, Magdalene.Wallis@sao.wa.gov Ms. Baylor referred to the attachment, Listing of Uncorrected Misstatements the 2019 Audited Financial Statements, advising the uncorrected misstatements have been shared with management and do not affect the clean opinion that is being issued on the financial statements. Acting Finance Director Dave Turley commented he has worked with the Auditor's Office on audits for 12-14 years and every audit team is not alike. Ms. Wallis has been on the City's auditor for 2-3 years and 90% of the communication is with her. In any audit there are disagreements and back and forth; the Auditor's Office as a whole and Ms. Wallis in particularly have been really good to work with. An audit is kind of like slow torture over severnl wP.Pkc and thev all inr.hirlina Mc Rnvinr nnri Mr (Tnrlhnie hnva been good to work with and he appreciated that. Council President Fraley-Monillas thanked the audit team, commenting they were very professional and easy to work with. As a former state employee herself, she said it was great to see departments within the state prioritize customer service. She gave a shout out to Mr. Turley and his staff for all the work they did, clearly they went over and above what most cities do to provide information. She asked Mr. Turley to relay the Council's thanks to his staff. Councilmember Buckshnis agreed everyone did a great job. She thanked the audit team for addressing the citizen's concerns, a great representation of collaboration. The citizen was happy that his questions were answered and that it did not require a public records requests to the City and State. She thanked the audit tearn for their professionalism. Mayor Nelson commented in the communications Mr. Turley had with him, he did not mention any ill will with the auditors. In fact, not only were they professional, they adapted to the current situation and conducted an audit during a pandemic and economic crisis, sharing information and being productive which was no small feat. Ms. Baylor thanked the Council and Mr. Turley for their kind words and expressed appreciation for their time today. Mr. Gadbois looked forward to working with the City next year. 3. ADJOURN With no further business, the Council meeting was adjourned at 2:33 p.m. MICHAEL NELSON, MAYOR SCOTT PASSEY, CITY CLERK Edmonds City Council Approved Minutes September 10, 2020 Page 6 providing assistance in financial management, eybersecurity and more. Check out our best practices and other resources that help local governments act on accounting standard changes, comply with regulations, and respond to recommendations in your audit. The Center understands that time is your most precious commodity as a public servant, and we are here to help you do rnor•e with the limited hours you have. If you are interested in learning hoer we can help you maximize your effect in government, call us at (564) 999- 0818 or email us at Center�@sao,wa.gov. Q Questions? • Please contact us with any questions about information in this document or related audit reports. Kelly Collins, CPA, Director of Local Audit, (564) 999-0807, Kelly.Collins(?sao.wa.gov J'ina Watkins, CPA, ,Assistant Director of local Audit, (360) 260-6408, Tina.Watkins,,' sao,wa.gov — Kristina Baylor, Program Manager, (425) 951-0290, Kristina.Bayloi-6�b ao.wa.gov Kirk Gadbois, Assistant Audit Manager, (425) 951-0912, Kirk.Gadbois(c sao.wa.gov — Magdalene "Maggie" Wallis, CPA, Audit. Lead, (425) 9d8-7101, Magdalene.Wallis@)sao.wa,gov Ms. Baylor referred to the attachment, Listing of Uncorrected Misstatements the 2019 Audited Financial Statements, advising the uncorrected misstatements have been shared with management and do not affect the clean opinion that is being issued on the financial statements. Acting Finance Director Dave Turley commented lie has worked with the Auditor's Office on audits for 12-14 years and every audit team is not alike. Ms. Wallis has been on the City's auditor for 2-3 years and 90% of the communication is with her. 1n any audit there are disagreements and back and forth: the Auditor's Office as a whole and Ms. Wallis in particularly have been really good to work with. An. audit is kind of like slow torture over several weeks and they all, including Ms. Baylor and Mr. Gadbois, have been good to work with and lie appreciated that. Council President Fraley-Monillas thanked the audit team, commenting they were very professional and easy to work with. As a f.'ornner state employee herself, she said it was great to see departments within the state prioritize customer service. She gave a shout out to Mr. '.Curley and his staff for all the work they did, clearly they went over and above what most cities do to provide information. She asked Mr. 'Purley to relay the Council's thanks to his staff. Councilmember Buckshnnis agreed everyone did a great job. She thanked the audit tearnr for addressing the citizen's concerns, a great representation of collaboration. The citizen was happy that his questions were answered and that it did not require a public records requests to the City and State. She thanked the audit team for their professionalism, Mayor Nelson commented in the communications Mr. "Purley had with hire, he did not mention any ill will with the auditors. 1n fact, not only were they professional, they adaptedd to the current situation and conducted an audit during a pandemic and economic crisis, sharing information and being productive which was no small Peat. Ms. Baylor thanked the Council and Mr, Turley for their kind words and expressed appreciation for their time today. Mr. Gadbois looked forward to working with the City next year. 3. ADJOURN With no farther business, the Council meeting was adjourned at 2:33 p.m. 1 eHAEL NELSON, MAYOR sC ASSEY CITY Edmonds City Council Approved Minutes September 10, 2020 Page 6